The mortgage is the guarantee of payment of a debt in the form of property. The term is often used to refer to the type of financing a property uses as collateral.
Mortgage is the main type of real estate financing practiced in Brazil, and the financed property itself serves as a guarantee of the credit granted by the bank for its acquisition. When it comes to real estate financing in Brazil, it is almost certainly a mortgage, although this expression hardly appears in the advertising of financial institutions.
Those who already own property in their name can also mortgage it to obtain loans for other purposes, for example, to open a business or finance their studies.
Advantages and disadvantages of the mortgage.
The advantage of a mortgage loan is the possibility of obtaining higher amounts, with longer terms and lower interest rates than other types of credit.
However, if the debtor does not pay the debt, he will lose the property that he offered as collateral, which is the main risk of the mortgage. Since the asset was voluntarily promised by the debtor, it can be taken even if it is the sole property of the family.
How does the mortgage work?
In this type of credit, the mortgaged asset is in the name of the borrower, but a contract is signed that guarantees the creditor’s right in case of default. The registration of the mortgage is made in the property registry, so that it is public.
While paying your financing, the debtor will normally be able to enjoy your property. This is where the mortgage differs from the commitment mechanism. In the promise, the guarantee is delivered to the creditor while the debt is not paid. To demand this physical transfer of the guarantee, the tax is only applied in the case of personal property (jewelry, vehicles or machines, for example), unlike the mortgage.
The mortgage is an indivisible right, that is, the mortgaged asset will remain fully in guarantee until the debt is fully paid. This means that the debtor will lose all the property if he does not pay his debt, even if he has already paid most of it and the outstanding balance of the debt is well below the value of the asset.
Another feature of the mortgage is that the lender will be able to foreclose it even if the property no longer belongs to the debtor. This is possible because the legislation does not prevent a mortgaged property from being sold to another person. The buyer of a mortgaged property may lose it if the previous owner does not meet the requirements.
It is the Civil Code that establishes the mortgage regulations, in articles 1,473 to 1,505.
Types of mortgage
Conventional mortgage
It is the most common type of mortgage, which is signed by mutual agreement between creditor and debtor. It covers commercial financing contracts that use a property as collateral.
Legal mortgage
Little used in practice, the legal mortgage is an instrument provided for in legislation that aims to prevent or compensate for possible losses. It does not depend on the approval of the debtor, since the law provides it in some situations. An example is the right given to children over the properties of the father or mother who remarry before taking an inventory of the previous marriage.
Judicial or judicial mortgage
Courts determine this type of mortgage, which can mortgage the defendant’s assets in favor of the other party in the process to ensure compliance with the final judgment.
Mortgages and the crisis in the United States
Mortgage is a common type of loan in the United States. The classic mortgage model used in the country established a fixed interest rate, which was valid throughout the period of the loan.
In the first decade of the 2000s, US banks began betting on mortgage loans to clients with no history of good payers, using a fixed interest rate.
The so-called subprime crisis, which erupted in 2007 in the United States, originated from the uncontrolled increase in subprime mortgage loans.
Increasing interest rates in the American economy meant that many of these debtors were no longer able to pay their debts. At the same time, falling property prices reduced the value of collateral for loans. This scenario led to a crisis in the country’s financial system, which eventually spread throughout the world.